Company insolvencies soared last year as businesses struggled with the inflation crisis and the long-term impact of the Covid pandemic, new figures show.
A total of 30,199 UK businesses were involved in some kind of insolvency action in 2023 – 52% higher than in 2021, according to Creditsafe, a credit checking agency which tracks 430m businesses around the world.
Some of those insolvencies are likely to have been companies which would have failed earlier but were kept afloat by government help during the pandemic, according to Drew Fahiya, Creditsafe’s data director.
“For the companies that were doing well, Covid really hurt them, but for the ones that were struggling anyway, it probably gave them a bit of breathing space to get them back where they needed to be,” he said.
Others are businesses which where thriving until Covid. The Prop Factory had been turning over £800,000 a year and employing 15 people to make and hire out vintage games such as coconut shies and duck-shoot galleries for corporate events.
“We did Facebook’s Christmas party in Dublin, we’ve worked for Google, we did Renault Formula One’s Christmas party,” said Carmen Croxall, the co-founder.
That ground to a halt when the pandemic hit, and in spite of a boost in 2022, when there was a mini-boom due to pent-up demand from customers keen to hold a celebration, they closed the event-hire business just before Christmas.
“It never really recovered,” she said. “This year was 46% down – there was a seismic shift in the industry because people have made cutbacks, and we were right at the bottom of the pecking order.”
Now they are selling most of their remaining props, but hope is on the horizon – they ran a Christmas SelfieLand event last year where 6,000 people paid for the chance to take selfies in front of 20 different backdrops.
The venture was inspired by Croxall’s decision to transform her home into a gingerbread house, which went viral, and the SelfieLand profits are helping pay off the remainder of £400,000 of debts the company owes. She plans to open a cafe in their warehouse and create a funfair with their remaining props.Lorna Reeves had a similar experience. “I was the first LGBTQ+ wedding planner in the country,” she said. “We struggled when we got married because there was a lot of ignorance in the wedding industry – it was going well, and then Covid happened.”
When restrictions loosened, many clients did not press ahead with earlier plans. “Their lives had moved on, or they had spent a lot of time kicking around so did a lot of planning and research themselves,” she said. “People’s budgets have been smaller. The impacts on society have been so long-lasting it’s like long Covid for business.”
She called time on the business last year, and started a new venture, MyOhMy Events, and now employs four people.
Claire Hattrick sold her heated couch on new year’s day – the last vestiges of the beauty salon she had run for 17 years. “I was probably earning about £25,000 a year and I had about 80 clients. Suddenly I lost 86% of that during the lockdowns. It just got worse and worse and worse,” she said. “Then we had the price hikes with gas and electricity. I was literally paying for people to come and have a treatment.”
Clients aren’t keen on bikini waxes in a cold salon. “I was bringing in maybe £300 a month by the end. We had no support to help us get back on our feet and we’ve just been forgotten about.”
Hattrick has pivoted, as the management consultants say, and set up TheExecutiveMenopauseCoach.com with the help of her twin daughters. She is passionate about helping women floored by the menopause.
“I’ve now started to get a little bit of money coming in, but if it wasn’t for the girls coming up with the idea and us working our backsides off I would have no money coming in right now.”
The question that remains is whether or not insolvencies will return to pre-pandemic levels soon. Creditsafe tracks whether firms are creditworthy by examining banking data and said that in 2023, UK companies paid 45% of all invoices late, up from 35% in 2021 and just over 11 days late, on average. Globally, firms in the US were the slowest to pay, nearly 16 days late on average.
So far there are no signs that insolvencies are slowing, according to Stephanie Buckley, who founded the Insolvency Company with her husband Gareth in 2018 and works with businesses that are shutting down. She said 2023 had been a record year for their practice.
“We see all sorts of reasons for business failure,” she said. “Grief, baby loss, loss of loved ones, their own health problems – there seem to be a lot more health problems now.
“Also people are struggling to recruit. In a lot of industries it is hard to find staff, and that has an impact. And costs have gone up with inflation. Those are the main reasons, but everybody we work with cites Covid and Brexit.”
Liz Barclay, the small business commissioner, said that firms had been hit in 2023 by interest rate rises, inflation, business rates, taxes, debt repayments and skills and labour shortages.
“This underlines why it’s vitally important that all big customers pay their suppliers along the supply chain as quickly as possible. Late payments and extended payment terms add to those businesses’ woes and are often the straw that brings vital businesses to their knees. We must make 2024 the year we improve payment practices to help all the firms we deal with pay their bills, play their part in growing the economy and stay solvent.”
Tina McKenzie, policy chair at the Federation of Small Businesses, said: “There’s always a lag between economic troubles and a rise in insolvencies, as businesses throw everything they have at attempts to keep going before having to call it a day. With growth sluggish at best in 2023, we may well see an impact on small firms’ finances this year, even if the economic outlook improves.”
